Investment capital is the life blood of new ventures. Absent appropriate financing, a company with very good ideas can cease to exist. Whenever a company desires to obtain funding through public or private placements it is necessary for a company to create a business plan, and get the business plan into the hands of appropriate investors of all types both private and institutional so that a judgment can be made as to whether an investment is worthwhile.
Private equity is the fastest growing asset class. However, it is an asset class with the least amount of liquidity. Once perceived as extremely risky, investing in private companies is becoming more widespread as individuals, corporations and traditional conservative institutional investors (mutual funds, insurance companies, etc.) are now investing directly in private companies to pick up incremental return. Additionally, venture capital funds continue to invest at record paces. However, until the full sale or a secondary public offering occurs, there is no marketplace for an investor to sell securities that have been obtained during early round start up of the business. In 1999, over $48 billion poured into private companies in the U.S. alone, up 151% from 1998. The $48 billion represents a nine-fold increase in the last five years. Although the public markets are currently volatile, investments in private companies have continued unabated, as these investors are focused on a 40-year average annual return for venture capital investments of 45%, and the fact that “the performance of venture capital has almost no correlation with the stock market.” Despite the fact that all this money keeps pouring in, there is still no marketplace to buy and sell these securities.
One way to sell securities is to convince and investor of the worthwhile nature of the investment that is to be sold. This is typically done by meeting with and providing to investors a wide variety of materials, including business plans, presentations, and other supporting documents. The difficulty with having such business plans and documents reviewed is that investors are frequently inundated with business plans and hence do not have a sense of urgency in reviewing the business plans and making their investments decisions. Further, many such submissions are made to investors in a “shotgun” fashion without regard to the actual interests of the investors.
What would be truly be useful is a system and method for providing a secondary market for securities that is accessible by accredited investors over a network. Such a systems would provide targeted marketing of securities to investors that match the interests of the investor with the type of security available for sale. Such a system would allow, in an automated way, a review of business plans and ancillary documents in an efficient and effective manner, such that an investment decision can be rendered by institutional and private investors. Such a system would utilize, preferably, but without limitation, the Internet to create the marketplace, thereby establishing a secondary market for the buying and selling of private equities, both of individual companies and of limited partnership interests.